The City regulator is to warn Britain’s bank chiefs that it will reject their plans to pay out billions of pounds in bonuses unless they demonstrate that they are retaining sufficient capital to weather a worsening storm in the financial system.I have learned that Hector Sants, chief executive of the Financial Services Authority (FSA), will meet the bosses of the biggest UK-based lenders during the next few weeks to reinforce the message that bonus and dividend payments can only be settled upon once banks have satisfied regulators that their capital positions are sufficiently robust. A number of the relevant meetings between Sants and the bank chiefs are understood to have taken place already.Sants’ warning echoes a statement from the Bank of England’s new Financial Policy Committee last month that capital preservation should be prioritised over payments to staff and shareholders.The FSA told me this morning that it was “vigorously engaging with the major UK banks to ensure they complied with the FPC’s recommendation to retain capital by reducing distributions such as bonuses”.One senior banker said that Sants was taking a harder line on the issue of bank pay than in any previous year.Sir Mervyn King, Governor of the Bank of England (into which much of the FSA will be subsumed next year), said last month that hoarding capital was essential in what he called “an exceptionally threatening environment”, a reference to both the Eurozone crisis and the troubled UK economy.The FSA’s intervention is therefore relatively unsurprising. Nonetheless, it reinforces the fact that the looming bank pay round promises to be the most contentious since the industry was rescued by taxpayers in 2008.That’s despite the fact that pay levels at banks such as Barclays and Royal Bank of Scotland (RBS) will be depressed by the comparatively poor performance within their investment banking divisions.City investors are also turning up the heat on bank boards over the issue (belatedly, in the eyes of many people). Last month, the Association of British Insurers wrote to the chairs of the big banks’ boardroom pay committees to urge them to rebalance the amounts paid to employees and shareholders.The FPC has also warned that it could intervene to place a cap on the proportion of bank profits that can be distributed in bonuses and dividends.